Use Your Self Directed IRA To Purchase Rental Property

March 13th, 2012

With the current volatility in the housing market some investors may be prone to shying away from investing in real estate at this time.  However, many experts believe that this is a good time to invest in single-family homes and a spike in rental prices nationwide may add another incentive to purchasing single-family or multi-family dwellings.

Diana Olick of CNBC reported on March 12, 2012 that rent is up 3% nationwide over this time last year, while home prices are down 4.6%.  While this would normally push individuals to buy a home instead of renting, that is not the case in the current market.  This has created a demand for rental properties and many investors are jumping on the bandwagon and buying up single-family or multi-family dwellings and then turning them into rental properties.

“Right now investors are rushing to get in on cheap foreclosures, hoping to turn them around for quick rental income,” Olick reports.  “The regulator of Fannie Mae and Freddie Mac, the FHFA, is in the midst of a pilot program to sell 2500 foreclosed properties to investors as rentals. The bulk of these properties are already rented, which means buyers get a turn-key investment with instant returns.”

Many investors are not aware that they can use their retirement funds to purchase real estate.  Most people mistakenly believe that their IRA must be invested in bank CDs, the stock market, or mutual funds. Few Investors realize that the IRS has always permitted real estate to be held inside IRA retirement accounts. Investments in real estate with a Self Directed IRA LLC are fully permissible under the Employee Retirement Income Security Act of 1974 (ERISA). IRS rules permit you to engage in almost any type of real estate investment, aside generally from any investment involving a disqualified person.

Income or gains generated by an IRA generate tax-deferred/tax-free profits. Using a Self Directed IRA LLC to purchase real estate allows the IRA to earn tax-free income/gains and pay taxes at a future date (in the case of a Roth IRA the income/gains are always tax-free), rather than in the year the investment produces income.

With a Self-Directed IRA LLC, you can invest tax-free and not have to pay taxes right away – or in the case of a Roth IRA – ever! All the income or gains from your real estate deals flow though to your IRA tax-free!